One frustration: no-one can agree on the cause. “The jury is still out on whether yesterday’s selloff was caused by U.S. data, poor corporate earnings or the Chinese PMI. Whatever the reason, the real damage was done in emerging markets. All this provides a fairly nervous lead-in to next week’s Federal Reserve meeting where the consensus appears to be that another $10 billion in tapering will result,” said Jim Reid, a strategist at Deutsche Bank.

“The sell-off in high-beta currencies, particularly in emerging markets, is driven by an abrupt change of tone among G10 central banks with respect to liquidity provision. The fear is that the Federal Reserve, the Bank of England, and even the Bank of Japan will become less dovish more quickly than had been thought even a few weeks ago. The question is whether one or more of these central banks will act to reverse this view, given that central banks talk all day about cooperation, but act only when disruptions abroad threaten national economies.”

Paul Lambert, head of currencies at Insight Investment in London:

“At this stage I would say the market adjustment is orderly and reflects the shift in underlying flows. The Turkish lira and South African rand for example are not under pressure because of speculative attack but rather because of the lack of demand for their assets which is a problem when you have a big current account deficit. In the case of the good economic stories, like Mexico at this stage it’s a case of overweight positions being adjusted rather than the market placing negative bets.

“For Hungary they are moving to an easier monetary policy and will an orderly adjustment of the forint I’m sure would not be unwelcome. I think that could all change though. After the unprecedented flow of funds into emerging markets since the financial crisis we are a very long way from where we could be in terms of equilibrium flows. If that is right then we may just be at the beginning of the correction in emerging markets.”

“Emerging market currencies are under pressure generically but it is interesting to note where the pressure points are localized. The sell-off began with the genuinely vulnerable currencies like South African rand and Turkish lira. In Turkey’s case, the weakness was aggravated by the central bank disappointing markets by failing to hike rates in a meaningful way, following this by a series of ineffective direct dollar selling interventions. The weakness then spread to structurally sound currencies like Mexican peso and Korean won were the outlook is generally sound, but long investor positioning made shorter term traders feel they could squeeze some of these positions in an environment of market nervousness.

“Interestingly in markets where the fundamentals are relatively mixed and there is little market positioning, such as Philippine peso and Malaysian ringgit, the reaction has been fairly muted. So far there is nervousness but little signs of outflows. Also U.S. Treasury rates have actually been falling in recent days, unlike the rise which triggered the August sell-off. Eventually, lower U.S. rates could provide a reprieve to risk markets.”

“Today there is a lot more spillover to the Mexican peso, Hungarian forint, Polish zloty, South Korean won, that felt a bit safer in recent weeks. I can’t call it a crisis yet, more of a slow-motion train wreck that, for countries like Turkey, South Africa, Brazil, has been going on for 12 months now. We’ll see. I would say the Chinese yuan was your safe haven in EM but even that is starting to get scary.

“What interests me is how the theme of selectivity that many, including ourselves, were pushing the last few months is really getting thrown out the window. So, as nice as it is to think about relative value trades, they don’t really work when liquidity gets poor and the demand for dollars overrides all.”

“Hungary has allowed itself to become vulnerable to this kind of environment through the relentless easing. Front end rates are almost as low as Poland’s but with a lot more risk attached. The low carry, low implied volatility and entry levels now allow the market to use HUF as relatively cheap hedge on EM problems escalating. So the HUF weakness is likely to extend further.”

“The market is beginning to worry about EM and it should do so. So far we haven’t seen a major adjustment in positions. Investors are worried but are still long, in particular in fixed income. Many of them still believe EM currencies will appreciate over the medium term. They will have to cut losses and close those trades.

“We are not in a currency crisis yet but there is a risk that this will happen. Panic is a possibility but there is no reason for it.

“For this selloff to end we must see real rates in EM increasing more significantly than real rates that US. We must see that valuations have moved enough.”